Sorry posted wrong link earlier - here is the article:Rocky...

Sorry posted wrong link earlier - here is the article:

Rocky road
CRITERION
Time Boreham
May 03, 2007

Hot-rock stocks
HOT rocks or big bollocks? If advocates of this geothermal energy technique are right, Australia is about to tap an endless natural heat source from the earth's bowels.
If they're wrong - and sceptics abound - just keep loading those hoppers with old king coal. Plenty of countries may tap geothermal energy, but no one has yet to use hot rocks to generate power commercially.
Globally, the closest attempt to do so is in France, at the Soultz project, which has ordered a power plant with a vaunted output of 6 megawatts.

Still, there's some promising signs and investors have warmed to the story.

"Sure it's unproven, but everyone is talking about a climate change tipping point being 10 years away," Torrens Energy chief Chris Matthews says. "We have to invest and we have to invest now."

The listed hot-rock sector consists of Geodynamics (GDY, $1.10), Petratherm (PTR, 86c) and the smaller Torrens Energy (TEY, 50c), Green Rock Energy (GRK, 5.5c) and Geothermal Resources (GHT, $1.25).

Hot-rock industry reps met in Adelaide yesterday to form a lobby group to ensure the federal Government - which has dispensed grants already - keeps its wallet ajar.

The big hydrocarbon boys have also hedged their bets.

Woodside Petroleum and Origin Energy collectively own 18 per cent of Geodynamics, while Beach Petroleum has committed up to $30 million to help Petratherm further its Paralana project in South Australia.

Most of the activity is based in the pie floater state, which senior energy bureaucrat Barry Goldstein describes as "Australia's hot-rock haven".

Goldstein says that based on the rush for geothermal licences, investment should exceed $500 million by 2012.

He suggests more than 6 per cent of Australia's base-load power needs will come from hot rocks by 2030.

Maybe so, but we reckon the safest way of viewing the hot rockers is as niche suppliers to isolated townships or projects.

Green Rock, for instance, is close to BHP Billiton's energy-hungry Olympic Dam uranium mine, which will become even more so if a slated expansion goes ahead.

Similarly, Petratherm's Paralana project is close to the Beverley uranium mine.

Delve into the sector and it becomes clear that the players have disparate geotechnical strategies, and naturally they all think they're right.

"Everyone in the sector has taken a different approach," Green Rock chief Adrian Larking says. "Some people are chasing the hottest resource regardless of location, while some want to be close to a market."

Hot rocks involve drilling a very deep hole (up to 5km) and pushing water through fractured rocks. Typically, the heat is created by naturally depleting uranium.

The superheated water then spouts up a second hole at pressure and is tapped for power generation. The water then goes back down the first hole in a continuous loop.

Think of the reverse of a car radiator and you get the gist.

So far, only industry leader Geodynamics has drilled to the required depth, with the others extrapolating likely results from lesser holes, or third-party data.

After a promising start at its Cooper Basin site, last year Geodynamics struck problems with its second well and its shares were caned: down from a peak of $1.47 to as low as 62c.

Geodynamics looks to be over this glitch and management's now talking about completing a $200 million, 40MW plant in 2010. Last month it raised $50 million in a rights issue.

Elsewhere, Green Rock has drilled one well to nearly 2km, at a cost of $1 million. BHP has also allowed Green Rock to measure the heat in several of its own holes and these have confirmed "heat anomalies".

As a former exec of Western Mining, Olympic Dam's previous owner, Larking is familiar with the turf.

He says the next step is to fracture the hot granites by pumping down water at pressure, which hopefully will provide neat horizontal channels for water to flow from one hole to another.

Green Rock also has ground in eastern Hungary, in a joint venture with the local oil and gas giant MOL. The beauty of this project is that if it's not successful, Green Rock can recoup most of its expenditure through a World Bank insurance scheme (we didn't know there was one, either).

Production testing yielded saleable hot water, but not at flow rates strong enough to produce electricity.

Locally, Green Rock's short-term plan is for a 2MW pilot facility, with dreams of a $1 billion, 400MW facility.

As with the others, Green Rock is well aware that the coal supply (at Leigh Creek) for Port Augusta's 400MW station expires in 10 to 15 years.

Torrens Energy shares have bolted since listing in late March at 20c, but it's early days for its Torrens Area Project, 170km from Olympic Dam.

Torrens is yet to drill a hole, but has stumbled on temperature readings from an old oil drill hole. From this, Torrens has predicted 230-degree temperatures at a 5km depth.

The next stage is to "twin" that hole with another one to confirm the results.

"It doesn't necessarily save us the cost of a drill hole but it does tell us it's a hot zone already," Matthews says.

Criterion is wary of the hot-rocks hype, mainly because your columnist is still smarting from backing biodiesel stocks during the now forgotten oil crisis.

It's hard to gauge who's got the hottest rocks. Petratherm chief Terry Kallis says there's a need for JORC-style reporting standards which apply to the oil and mining sectors.

Like the uranium sector, it's a seductive game, but picking the early winners and losers ain't easy. We'll try.

Criterion rated Geodynamics an AVOID at 95.5c on January 31 and will still steer clear. This is on valuation grounds (market cap of close to $200 million) and the fact that Geodynamic's site is 500km from the nearest transmission line.

We rate Green Rock a SPECULATIVE BUY, by virtue of its modest valuation ($8.1 million) and because the risks are spread across projects here and in Hungary.

We rated Petratherm a SPECULATIVE BUY at 73c after January's Beach deal and will stick with that. Petratherm has also acquired a tenement in Spain, just outside Madrid, so there's a similar spread of risk.

Geothermal Resources stock has not exactly starred since listing in March last year as an offshoot of Havilah Resources.

After tweaking its plans, Geothermal started drilling eight holes at its Frome project in South Australia, just over the border from Broken Hill. AVOID, pending further evidence of progress (and because of low liquidity).

Torrens stock has had a decent run already, but we'll say HOLD.

Having the second biggest holding of geothermal tenements in SA and being close to the national grid justifies a $17 million market cap.

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The Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser. The author does not have an interest in any of the stocks mentioned.